How do I pay myself as a contractor?

Chris Andreou

September 3, 2021

How do I pay myself as a contractor? guide
No items found.
Download Now ↓
Contractors

A contractor working through their own limited company can pay themselves by drawing dividends and a salary.

There are a few factors that need to be considered when deciding the best way to go about this. For example, if your contract is deemed to fall inside IR35, you will be restricted to paying yourself a salary.

On the other hand, if your contract falls outside of IR35, you'll then have the option of drawing a salary and dividends to maximise tax efficiency.

If you're contracting through an umbrella company, you'll receive a salary from your provider (similar to how you'll be paid if you were a permanent employee).

Additional resources:

Download our Ultimate Expenses Guide

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
No items found.
No items found.

Download our Ultimate Expenses Guide

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
No items found.
No items found.

What's Inside:

No items found.

Get Free Advice from an Accountant

Book a free 30 minute call with an accountant. We'll help walk through setting up your business, switching accountant or any of your tax queries. All our fixed price accounting packages come with a 50% off for 3 months.

Read More Guides below:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I become a contractor? Guide

How do I become a contractor?

To become a contractor, you need to:

  • Do your research: The first step you'll need to do is to conduct in-depth research, and think through various important factors-from finances and tax implications, to lifestyle and business opportunities-to ascertain if becoming a contractor is the right decision for you.
  • Decide on how you'll operate: As a contractor, you may operate as a sole trader, through your own limited company, or work with an umbrella company or recruitment agency.
  • Develop a business strategy: Strategic planning isn't set in stone-but working out a plan is still helpful, as it is a way for you to consider multiple perspectives, identify potential opportunities and pitfalls and conceptualise back up plans you could fall back on.
  • Get your business finances and insurance sorted out: Setting up a business bank account, registering a company, determining the level of accounting support you need and investing in business insurance are important aspects you need to sort out before you begin contracting.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
7 ways to improve your monthly cash flow Guide

7 ways to improve your monthly cash flow

Healthy cash flow is one of the most powerful weapons in a small company's arsenal.

In fact, cash on hand can be the deciding factor in a customer's choice to buy from your company or a competitor.

For instance, imagine landing the large order of your dreams, but losing the business to a competitor because you lack the capital necessary to prepay for the products needed to fill the customer's order. Fortunately, you can avoid this pitfall by making a few simple changes in your operations.

Below is a look at seven ways to grow your monthly cash flow by reducing expenses.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What do I need to do to pay a dividend? Guide

What do I need to do to pay a dividend?

To pay a dividend, you need to:

  • Hold a directors' meeting to ‚Äòdeclare' the dividend.
  • Keep minutes of the meeting, even if you're the only director. For smaller companies, this may often be just a case of getting the paperwork completed.
  • Issue dividend vouchers.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I pay an employee? Guide

How do I pay an employee?

If you're paying an employee for the first time, you'll need to set up payroll. You need to take the following steps:

  1. Register as an employer with HM Revenue and Customs (HMRC) and get a login for PAYE Online.
  2. Choose payroll software to record employee's details, calculate pay and deductions, and report to HMRC.
  3. Collect and keep records.
  4. Tell HMRC about your employees.
  5. Record pay, make deductions and report to HMRC on or before the first payday.
  6. Pay HMRC the tax and National Insurance you owe.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Is a contractor self employed? Guide

Is a contractor self employed?

Contractors can be self-employed, a worker or an employee. Those who are employed through an umbrella company or an agency could be considered a worker or an employee.

If a contractor is a sole trader or runs a limited company, he or she will then be considered a self-employed person.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What is the optimal salary for a Company Director? Guide

What is the optimal salary for a Company Director?

The optimum salary for a contractor to pay themselves in the current tax year is dependent on their overall income throughout the period.

In the instance there is no other income to be considered, it is generally recommended that salary is paid in line with the Secondary National Insurance threshold which is currently £732 per month (20/21).

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I pay myself a salary? Guide

How do I pay myself a salary?

If you're the director of a limited company, you're also considered an employee. As such, you may pay yourself a salary through the PAYE scheme-which is similar to how other employees of the company receive their pay.

You'll need to register as an employer with HMRC (even if you're only employing yourself as the sole director of a limited company), set up and run payroll, report to HMRC and abide by HMRC's record keeping requirements.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I pay a Limited Company Pension? Guide

How do I pay a Limited Company Pension?

If you're operating as a sole trader, you can contribute to a personal pension scheme.

If you're a limited company director, you can make pension contributions as an individual (as an employee), as well as through your company (as an employer). For the latter option, your pension contributions are paid directly from your business bank account.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What is subcontracting? Guide

What is subcontracting?

As an independent contractor, there may come a point in time where you need to consider subcontracting-you might decide to take on work as a subcontractor, or hire a subcontractor for your projects.

Whichever option you're exploring, how do you decide if the benefits truly outweigh the cons? And are there important tips you need to keep in mind?

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What is a directors loan account? Guide

What is a directors loan account?

As a limited company director, you can access the money in your company bank account through a facility known as a director's loan.

This can come in handy in instances when your personal finances are in need of a boost, yet taking out a director's loan is a decision that requires careful consideration. That's because there are tax and accounting implications, and it's best to speak to an accountant so that you fully understand the consequences.

But before you dive into the details, you'll need to have an understanding of the basics-such as what a director's loan account is, what the loan can be used for, tax rules you need to be aware of and more.

Here's where our guide comes in:

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
19 Places to Find Contractor Jobs & Roles Guide

19 Places to Find Contractor Jobs & Roles

When you get into contracting, it can get stressful when your project end date is just around the corner and you haven't secured your next role. This amps up even more once you finish a contract and you're looking for your next gig.

As a specialist contractor accounting business founded by contractors, one of the key questions we get asked is about where to find roles. So, we decided to compile a list of some of the best contractor job portals, platforms, recruiters and consultancies.

If you have anything else to add then please let us know at info@goforma.com.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
When can I pay myself as a Limited Company Director? Guide

When can I pay myself as a Limited Company Director?

As a limited company director, you may pay yourself through taking a salary and drawing dividends.

Salaries are typically paid out monthly. While dividends can be drawn at any frequency across the year-as long as there are sufficient distributable profits-payments are typically made on a monthly or quarterly basis.


Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Is a contractor an employee? Guide

Is a contractor an employee?

Contractors can be self-employed, a worker or an employee. Those who are employed through an umbrella company or an agency could be considered a worker or an employee.

If a contractor is a sole trader or runs a limited company, he or she will then be considered a self-employed person.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How to calculate holiday pay for overtime and commission payments Guide

How to calculate holiday pay for overtime and commission payments

"What are the rules around holiday pay?" is a common question often asked by employers.

It can be confusing, as regulatory changes mean that employers now need to consider additional elements when working out an employee's holiday pay.

Simply put, employers now need to include regular commission and regular overtime payments when calculating an employee's or worker's holiday pay.

This is explained in further detail below:

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
PAYE, P60's and Paying Yourself Guide Guide

PAYE, P60's and Paying Yourself Guide

  • What is PAYE
  • PAYE when self employed
  • When to register for PAYE
  • Sole trader taxes
  • Sole trader income tax calculations
  • Limited company dividends & salary
  • Dividend tax rates
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What is a Contractor? Guide

What is a Contractor?

You've been thinking about making the leap from employee to self-employed. If contracting is one of the options you're considering, this article is for you.

We'll run you through the basics, including what it means to be a contractor, how it differs from full-time employment and the type of business structures that contractors typically choose.

Contractors are self-employed individuals who provide services to a business. Generally, they're highly skilled, and are hired for projects that require specialist skills or to bolster a team during busy periods.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I repay a Director's loan account? Guide

How do I repay a Director's loan account?

There are various ways to repay a director's loan.

  • Dividend: A dividend can be declared, and the money can be used to pay off the loan instead of being transferred to the director's personal account.
  • Cash repayment: A repayment is made by transferring money into the company account.
  • Expenses or salary: The loan can be paid off using other money to the director, such as the director's salary or expense reimbursements.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I pay a Contractor? Guide

How do I pay a Contractor?

You can pay an independent contractor by an hourly or daily rate, or by the project through the contractor's preferred payment method. You won't need to withhold taxes, as they are responsible for paying their own income and National Insurance contributions.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I pay Dividends to other Shareholders? Guide

How do I pay Dividends to other Shareholders?

To pay a dividend, you need to:

  • Hold a directors' meeting to ‚Äòdeclare' the dividend.
  • Keep minutes of the meeting, even if you're the only director. For smaller companies, this may often be just a case of getting the paperwork completed.
  • Issue dividend vouchers


Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I pay a company secretary? Guide

How do I pay a company secretary?

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
No items found.